California American Water officials warned that proposed cost caps on its Peninsula water supply project could make it difficult to get financing and might end up halting the project.

In rebuttal testimony submitted to the state Public Utilities Commission on Friday, Cal Am officials responded to a recommendation from the PUC's Division of Ratepayer Advocates that cost caps should be set on the desal project well below Cal Am's estimates. Cal Am rejected the division's suggestion that it had vastly overestimated the costs.

The project is designed to provide a replacement source of water for the Peninsula to offset a state-ordered cutback in pumping from the Carmel River set to take full effect at the start of 2017.

In its testimony, the Division of Ratepayer Advocates suggested Cal Am had overestimated project costs by as much as $60 million for the proposed desalination plant north of Marina, $40 million for transfer pipelines and other infrastructure facilities, and even annual operations and maintenance costs. The division suggested its proposed cost caps could save Peninsula customers as much as $24.6 million per year.

Cal Am directors David Stephenson and Rich Svindland argued the proposed cost caps were unnecessary, could make it difficult to get financing and made no sense.

"There is no way for any person to determine an absolute not-to-exceed amount," Stephenson testified in writing, saying material prices could "skyrocket," construction cost issues could arise and permitting issues could surface. The division's proposal, he testified, could "lead to a halting of the project because of risk or lack of funding."

Cost caps, Stephenson said, are "normally used to ensure that the project selected remains reasonable. This assumes choices. In this case, a project has to be built or economic ruin may be realized on the Monterey Peninsula. There is no choice but to build a project. What the commission should be doing is ensuring prudent expenditures and not creating artificial caps that might kill the project. California American Water should not be placed in a position where it might not recover prudent costs for a project that is mandated, necessary and the choice of most in the community."

Svindland specifically rejected the division's cost estimates and promised that Cal Am would do everything it could to finish the project below its own cost estimates.

And, he said, a project governance committee would provide the kind of "transparency and multi-agency involvement" that would render a cost cap unnecessary.

The three-member committee will have varying levels of oversight on nearly every aspect of Cal Am's project, though company officials will have final say on most of the details.

Its first meeting is set for 2 p.m. Wednesday at the Monterey Peninsula Water Management District's offices on Harris Court in Ryan Ranch. The committee's agenda calls for considering a request for qualifications for a design-build contractor for the desal project, among a number of other items.

Committee members are county Supervisor Dave Potter; Carmel Mayor Jason Burnett, who will represent the Peninsula mayors' water authority; and a representative of the Water Management District, whose water supply planning committee on Monday recommended tabbing its chairman, Bob Brower, for the spot.

Water district general manager David Stoldt said Brower will attend Wednesday's governance committee meeting, and the district board will formally consider designating him as its representative Monday. The water supply committee also recommended designating Jeanne Byrne as the district's alternate on the governance committee.

The Peninsula mayors' water authority is set to consider Cal Am's testimony during its meeting at 7 p.m. Thursday at Carmel City Hall.

In other news, the Peninsula water district's water supply committee on Monday recommended beginning negotiations with DeepWater Desal as the potential developer of a contingency project in case the Cal Am project falters. Stoldt said the water district board will consider that recommendation Monday.